BUSINESS

The steep cost of cheap gems

IAN AUSTEN July 11 1983
BUSINESS

The steep cost of cheap gems

IAN AUSTEN July 11 1983

The steep cost of cheap gems

For Simpsons-Sears Ltd., it was a sour end to a hugely successful, and misleading, advertising campaign. A lengthy probe by federal investigators into a diamond ring promotion by the retail giant during the mid-1970s culminated last week when a Toronto judge levied a record $1-million fine against the firm for false advertising. County Court Judge George Ferguson’s decision to levy the massive fine—the previous record was $85,000—brought an end to the largest prosecution for false advertising that the federal justice department has ever undertaken. Indeed, Ferguson agreed with Crown counsel Rod Flaherty’s claim that Sears conduct in the affair was “reprehensible” and the judge added: “There are no mitigating circumstances of any kind.” The conviction and fine stem from a scheme whereby some $7 million worth of diamond rings were improperly appraised by H. Forth and Co. Ltd.— which was also convicted and fined $12,000—with Sears’ knowledge. An ad campaign offered the tens of thousands of rings at price cuts of 33 to 50 per cent off their “appraised value.” As part of the deal, each of the buyers of the approximately 35,000 rings was provided, free of charge, with an H. Forth appraisal certificate purporting to show the ring’s carat weight, color and retail value.

But the certificates proved to be the campaign’s downfall. Judge Ferguson ruled: “I find that it was a physical impossibility for each ring to have been examined by Forth in a manner necessary for a true and valid appraisal certificate to be issued.” Rather than examine each ring, Simpons-Sears and H. Forth set a price for each style and then prepared batches of certificates.

The scheme eventually foundered. One ring, described as sporting two diamonds surrounding an emerald, in fact consisted of two diamonds with a piece of green glass. The 72-store chain, with outlets across Canada, launched the ring sale despite eight previous false advertising convictions. Indeed, the “sale” did not come to an end until the companies were sent to trial. In the wake of the heavy penalty last week, a company official refused comment. Said Crown counsel Flaherty: “This company has one of the worst records in Canada. It reveals a pattern of conduct-encouraged by relatively modest fines—for contempt for the law and a willingness to treat fines as the cost of business.” In the matter of rings, it was the highest cost to date.

IAN AUSTEN